Clarity trumps content: An experiment on information acquisition in beauty contests

Sanjay Banerjee, Hong Qu and Ran Zhao

Journal of Economic Behavior & Organization, 2022, vol. 195, issue C, 381-407

Abstract: We study how beauty contest incentives affect information acquisition decisions when players can access multiple information sources. Players can acquire information from two equally informative sources: one source has high clarity (i.e., easy to understand and thus likely to be commonly interpreted) but low content (i.e., less precise to identify the economic state); the other has low clarity but high content. Theory predicts that strong beauty contest incentives lead players to ignore information with low clarity despite its high content. Our experimental results confirm this inattention to low-clarity information. Surprisingly, the inattention is stronger than theoretical prediction. In the beauty contest game, subjects use low-clarity information more than theory predicts. The over-use of low-clarity information at the beauty contest stage generates an endogenous cost at the information acquisition stage. The endogenous cost can lead to the under-acquisition of low-clarity information even when information cost is negligible. Interestingly, we find that the under-acquisition of low-clarity information substantially offsets its over-use in the beauty contest game.

Keywords: Information acquisition; Beauty contests; Limited level reasoning; Coordination (search for similar items in EconPapers)
JEL-codes: C92 D82 D84 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:195:y:2022:i:c:p:381-407

DOI: 10.1016/j.jebo.2022.01.009

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